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📝 '''Purchase and sale agreement (PSA)''' is the definitive legal contract governing the transfer of ownership in an [[Definition:Insurance mergers and acquisitions (M&A) | insurance M&A]] transaction, setting out the terms under which a buyer acquires all or part of an [[Definition:Insurance carrier | insurance company]], [[Definition:Insurance broker | brokerage]], [[Definition:Managing general agent (MGA) | MGA]], or other insurance-related business. In the insurance context, the PSA carries a complexity beyond that of typical corporate acquisitions because it must address sector-specific considerations such as [[Definition:Regulatory approval | regulatory approvals]] from [[Definition:Insurance regulator | insurance supervisors]], treatment of [[Definition:Reserve | loss reserves]] and [[Definition:Unearned premium | unearned premiums]], continuity of [[Definition:Insurance policy | policyholder]] obligations, and compliance with [[Definition:Change of control | change-of-control]] provisions in [[Definition:Reinsurance | reinsurance treaties]] and [[Definition:Binding authority agreement | binding authority agreements]].

🔧 A typical insurance PSA includes detailed provisions on purchase price and its adjustments — often tied to a [[Definition:Net asset value | net asset value]] or [[Definition:Embedded value | embedded value]] mechanism that accounts for movements in reserves between signing and closing. [[Definition:Representations and warranties (R&W) insurance | Representations and warranties]] sections tend to be extensive, covering the adequacy of [[Definition:Reserve | reserves]], the status of [[Definition:Regulatory compliance | regulatory filings]], the validity of [[Definition:Insurance license | licenses]], and the absence of undisclosed [[Definition:Claims | claims]] or litigation. Conditions precedent to closing typically include obtaining approvals from the relevant insurance regulators — a process that can take months in jurisdictions such as the United States (where multiple state approvals may be needed), the European Union, or China. The agreement may also address [[Definition:Transition services agreement (TSA) | transition services]], [[Definition:Restrictive covenant | restrictive covenants]], and arrangements for [[Definition:Run-off | run-off]] of legacy liabilities.

💼 Getting the PSA right is essential because errors or ambiguities can have consequences that ripple through the insurance business for years after a deal closes. Disputes over reserve adequacy, for example, can lead to significant post-closing purchase price adjustments and protracted litigation. Similarly, failure to properly address reinsurance relationships in the agreement may trigger [[Definition:Cut-through clause | cut-through]] provisions or loss of critical [[Definition:Reinsurance recoverables | reinsurance recoverables]]. Buyers increasingly supplement the PSA with [[Definition:Representations and warranties (R&W) insurance | R&W insurance]] to cap their exposure to breaches of seller representations, a practice that has become standard in insurance-sector transactions across North America and Europe. A well-drafted PSA, informed by deep understanding of insurance operations and regulation, is the foundation upon which successful ownership transitions are built.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Insurance mergers and acquisitions (M&A)]]
* [[Definition:Representations and warranties (R&W) insurance]]
* [[Definition:Due diligence]]
* [[Definition:Regulatory approval]]
* [[Definition:Change of control]]
* [[Definition:Reverse break-up fee]]
{{Div col end}}

Definition:Purchase and sale agreement (PSA) - Revision history

PlumBot: Bot: Creating new article from JSON